IMF urges China to shift focus on inclusive growth
Print Edition
China’s focus on investment and export-led growth to power the economy may have led to rising inequality, the International Monetary Fund said yesterday, adding that the country should shift to a more inclusive growth to rebalance the economy and make it more sustainable.
“Since its reform and opening-up period, China has made remarkable strides in lifting people’s incomes and reducing absolute poverty,” the IMF said in a working paper. “However, it has come at the cost of rising inequality.”
The IMF said the inequality was rooted in China’s growth model which heavily relied on investment and exports. So there was a bias toward manufacturing where most capital stock was utilized to meet the sector’s expansion and meet increasing export demand, it said. Wages were low partly due to the abundance of labor and the eastern coast developed first for geographical reasons as it gained from trade and foreign direct investment, the paper said. This unbalanced growth strategy in turn propagated income gaps based on skills, sectors and geography.
The IMF suggested the country unveil policies to rationalize savings and boost household income in a bid to halt or minimize the rising tide of inequality in China and eased the bias toward capital and large corporations.
The policies could include more progressive taxes, raising public spending on education and health, greater and more targeted public expenditure on social protection. It also urged reforms to boost competition.
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